Thursday, July 10, 2008

Drill, Drill, Drill

The claim that the oil companies are sitting on leases and not drilling defies all logic. With oil at $135 per barrel and drilling rigs renting at $300,000 per day, there are no idle rigs anywhere.

The claim that any oil we drill for now will not come on line for five years or longer – and will thus have no effect on prices today – is incorrect. Unlike past oil crises, where the spot price of oil rose more than forward prices, the oil price for delivery in 2012 is trading at $138 per barrel. The market is sending a clear price signal that our problem is in the future – because we do not have the will to curb demand or increase supply.

How many houses would someone invest in if there were a future guarantee that the price would not decline? It is anticipation of ever-increasing prices that fuels the mania.

The oil market, however, has more than anticipation; it has a well-defined forward price signal. This is a key component of the added $25-$40 per barrel in current oil prices. Congressional hearings and "make it go away" legislation will not stop that. Demonstrate the national will to address the supply and demand issues now and it will.

As forward prices decline, watch how quickly the spot price comes down.

Joseph Petrowski, president of Gulf Oil writing in today's WSJ

7 Comments:

At 7/11/2008 8:00 AM, Anonymous Lars said...

Why aren't the oil companies making the case for getting more areas approved for drilling? Congress critters are using the argument that they are not using the millions of acres already approved. This needs to be clarified quickly and publicly or else no new drilling will occur, and the economy will further suffer.

 
At 7/11/2008 8:10 AM, Anonymous Anonymous said...

That same "well defined price signal" is what kept oil companies from exploring in the late 80's and 90's. With forwards trading low, there was zero incentive to explore or build new facilities.

 
At 7/11/2008 11:10 AM, Anonymous Anonymous said...

Noticed that only the "To Democrats" part of the article was shown on the site. We should really be focusing on the "To Republicans" part. Republicans fully support the biggest Socialist project the world has seen, the Federal Highway system and subsequent subsidizing of automobile travel. Look in the mirror...

 
At 7/11/2008 3:54 PM, Anonymous bob wright said...

Democrats say they don't want to drill in ANWR because the increased supply won't affect the price of gas ...

yet Nancy Pelosi wants Pres. Bush to tap the SPR - to lower gas prices.

I love it when politicians get to have it both ways.

 
At 7/11/2008 6:11 PM, Blogger juandos said...

"yet Nancy Pelosi wants Pres. Bush to tap the SPR - to lower gas prices"...

Good call!

How about some more wit and wisdom from Nancy Pelosi?

 
At 7/13/2008 6:08 AM, Blogger juandos said...

anon @ 11:10 in a fit of cluelessness says: "Republicans fully support the biggest Socialist project the world has seen, the Federal Highway system"...

Ha! Ha! Ha! Ha!

Did you forget socialist security?

Did you forget LBJ's War on Poverty?

One thing though you did get right, the Republicans ALSO have a lot to answer for regarding the continued funding and in a few cases the implementing of socialist, nanny state programs...

 
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